First 2010 trading drawdown analysis on the verge of a new record
I am close to passing my biggest monthly drawdown ever in my forex paper trading endeavour. My account drawdown is at -3.34% now. My record was set in last November at -3.44%. And it’s only the 13th! To make matters worse, this isn’t one of those transient, surprise drawdown. It is a slow and steady one. An excruciating one. See Figure 1 for my account balance graph for this month so far. Feel my pain!
My post earlier this month on 10 questions to ask yourself if you are holding a ginormous losing position and don’t know what to do was a real harbinger. I wrote that piece at precisely the top point on Figure 1. If only I can time my trades that well! But instead of a single ginormous losing position, I am faced with losing trades one after another. Thus, drastic measures need to be taken before I mark a new drawdown record. This post is a self-assessment on what I’ve done wrong and my plan to turn this wreck around.
January 13 account balance
Upon review of my trade log, it is apparent that my account suffered because I was too eager in shorting the Aussie. As a standard risk management procedure, I kick started my emergency protocol when my drawdown reached 3.00% last week as I tweeted. Basically just reducing my risk by trading with only half the usual position size.
That was all last week. This week, I found myself breaking another of my trading rules. I am letting this drawdown affect my trading, in a bad way. Specifically, I am letting my need to perform affect me by starting to day trade the GBPJPY currency pair! If you might recall from last year, I resorted to the same desperate measure (isn’t it great to be able to recall my past trading experience just like that?) and that was the month when I had the largest drawdown. Exactly because of that.
In fact, the drawdown emergency rules posted last time are as appropriate as ever. Heck, I will copy and paste these rules in my 3 rules of trading as a permanent fixture. I seem to need them quite often.
I can’t helped but feel chagrined with the fact that my current situation yields itself to a perfect follow-up to my previous post on trading drawdown. However, this is what it is. In my next post, I will examine why I keep going back to this same bad habit of day trading (even though I suck at it) when I am under pressure.
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